Telephone Numbers
Telephone Numbers
Estonia Company VAT Registration Processes and Obligations
For detailed information +90 542 381 3868 'Call.
Most of us are familiar with value-added tax (VAT) as a fee added to the cost of goods and services when we purchase them. It's a way for the government to generate revenue. Unlike sales tax in the US, VAT is usually included in the total price we pay at checkout, so we don't really have to think about it. In fact, unless we're in business ourselves, we may not be aware of the responsibility businesses have to collect and report VAT.
As a World Company Setup client, most VAT-related tasks, including calculating and adding the correct VAT rate and amount to each invoice, are automated. However, as the business owner, you still hold the legal responsibility for compliance. Therefore, it's important to understand how VAT works in your company.
As in the rest of the EU and other countries, VAT in Estonia is a consumption tax. This means everyone pays the same rate on goods, regardless of their personal wealth or income.
It is charged equally for all products, but some items considered essential for life (health, education, etc.) are exempt. Certain equipment, sanitary, and toilet products are subject to a reduced rate.
Everything else is subject to VAT at a standard rate, and when you invoice a business in Estonia, you receive the VAT payment in addition to your fee. You will then pay it to the state once a month.
If you buy or sell goods and services to VAT-registered businesses in other EU countries, you can usually trade at a zero rate.
Assuming you are using your Estonian e-Resident status to start a business, you will eventually be required to register for a VAT number and handle VAT collection and reporting.
Your company, a resident in Estonia, will be liable for VAT in any case as soon as it earns more than €40,000 in a tax year, which corresponds to the calendar year. (You also need to register if you sell imported goods to buyers in the EU under the Import One-Stop Shop (IOSS) program, but this normally does not apply to World Company Setup clients, and there are also exceptions if you only sell outside the EU.)
As soon as you reach the €40,000 threshold, you have only 3 days to register yourself as a taxpayer with the Estonian Tax and Customs Board, so in practice, it makes more sense to anticipate your expected earnings and register voluntarily in a timely manner.
Although this means you will have to comply with monthly reporting (even in months where you have nothing to report), you will still be able to benefit from any refunds you may be entitled to. Whether you generally benefit from VAT registration in terms of retained income will depend on the VAT you pay for goods and services and whether your customers are mostly individuals or VAT-registered businesses.
You should be aware that voluntary registration is at the discretion of the Tax Authorities, who may refuse VAT registration if you have no transactions with customers located in Estonia. A business plan confirming your intentions and estimated income above the qualifying threshold will support your registration in most cases.
The procedure for registering as an Estonian VAT payer is as follows:
That's it! In a successful application, you will be issued an Estonian VAT number that starts with EE, followed by 9 digits. This is different from your personal and business identification numbers.
For most commercial goods and services in Estonia, VAT is applied at a rate of 20%, unless your offerings fall into the special categories mentioned above. These items are charged at a rate of 9%, with the exception of non-advertising press and media, which was recently reduced to 5%.
VAT is automatically applied and added when you register a customer with an Estonian address in the database. So, while the arithmetic of the applicable rates is quite simple, you still don't have to think about it. When setting prices and quoting for goods and services with your customers, you should always think and speak in terms of net, i.e., before VAT. Even though it is added to the total amount they pay and even sits in your business bank account for a while before each monthly payment, it is never your money! Your customers will expect VAT to be added at the point of invoicing.
Get Information on Becoming an E-Resident and Opening a Company in Estonia
If your customer is registered for VAT in another EU country (or other countries that use VAT), the rate applied to the invoice will be 0%, as this business is collecting and declaring VAT in its own country of permanent establishment. Therefore, it is considered an offset. Each country has a two-letter prefix, such as ES for Spain or DE for Germany. The United Kingdom still uses GB for its VAT numbers, but the status of businesses there can no longer be verified in VIES.
VIES is a special European Commission tool to verify VAT registration status against its own registry. You will see a green checkmark appear to confirm verification in the VIES database, and then a zero rate is applied to the invoice. You can also check the VAT number directly yourself if you wish.
Meanwhile, it can sometimes be difficult to find a valid VAT number for some businesses. Indeed, if they are multinational, it is important to determine with your contact person which business entity you are actually contracting with and invoicing!
If a business does not have a VAT number on its contact page, you can use tools like a VAT search in the EU or the Companies House website in the United Kingdom. Also, if the business has a 'terms and conditions' page or a data protection statement, often embedded in a small link in the footer section of the website, this usually specifies the full registered address and VAT number of the relevant entity.
It is important to note that the zero rate is a specific intra-community status and is NOT the same as being exempt from VAT or not being charged VAT for something. Therefore, you should only use/specify it when it is strictly applicable, i.e., when transacting with a compliant entity that has a VAT registration. If you mistakenly issue an invoice without VAT when it should have been charged, you will then effectively lose 20% of your fee...
One reason a business might try to stay below the VAT registration threshold initially if its income is low is that it immediately creates a new monthly accounting obligation. This is a big step up from filing a single annual report, which may be the only requirement for a low-income business.
To file on your own behalf, you can submit the KMD form and all necessary annexes through the customs board website, detailing all invoices involving taxable goods and services (separated by the different rates of 20%, 9%, 5%, 0%, or exempt). This must be submitted and paid by the 20th of each month, regarding transactions from the immediately preceding month.
You can submit by uploading simple spreadsheets; otherwise, there is a range of business software compatible with the Tax and Customs board, so the VAT return and its annex can be sent automatically from one machine to another.
For World Company Setup clients, you don't need to worry about this because your representative will stay on top of everything for you.
They will make the calculations in time before the 20th of the month and notify you of the exact amount to be paid with the appropriate references. They can even set this up in your integrated business bank account, so you only need to log in and approve it.
If you have no customers in Estonia in any given month, it will assume the liability and offset the VAT paid in Estonia against the account, but you will probably not even be aware of it - this is just one of the compliance mechanisms automated for you.
If you are paying VAT to someone in Estonia, this will ultimately create a negative VAT liability, and from time to time, you will be supported to claim a refund of the payment from the tax authorities.
As you can see, the VAT environment in Estonia and the wider EU creates special obligations for e-residents. While these are not complex or designed to catch anyone out, they are quite precise and quite sensitive to time.
VAT in Estonia and the wider EU creates special obligations for e-residents. While these are not complex or designed to catch anyone out, they are quite strict and time-sensitive.
+90 542 381 3868
+971 58 5204103